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Sales Planning Ecosystem®](/sales-planning-ecosystem/) [Incentivate Quota Intelligence Framework®](/quota-planning-and-governance) [Incentivate Dealer Scheme Automation System®](/dealer-schemes-&-discount-automation/) [Incentivate Channel Commission Engine®](/channel-partner-commission-management/) Solutions [By Role](/incentive-solutions-by-role/) [Sales Operations](/role/sales-operations/)[Sales](/role/sales/)[Finance](/role/finance-accounting/)[HR](/role/human-resources-performance-management/) [By Industry](/incentive-solutions-by-industry/) [Software Solutions & Services](/industry-pages/software-solutions-and-services/)[Retail](/industry-pages/retail-incentives-software/)[Medical Devices](/industry-pages/medical-devices-sales-compensation-software/)[Insurance](/industry-pages/insurance-incentives-and-commissions/)[Insurance Brokers](/industry-pages/incentive-management-for-insurance-brokers/)[NBFC](/industry-pages/unraveling-incentive-complexities-in-nbfcs/)[Financial 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Scheduling](/video-hub/job-scheduling/)[Upload](/video-hub/upload/)[Tables](/video-hub/tables/)[Processes](/video-hub/processes/)[Periods](/video-hub/periods/)[Parameters](/video-hub/parameters/) [Incentive Glossary](/glossary/) About [Our Team](/our-team/) [About](/about/) [Partners](/partners) [Why us?](/why-us/) [Contact](/contact/) [Request Demo](/book-a-meeting/) Table of Contents * [How to pay sales incentives to the employees?](#55092) * [Why is a payout curve essential?](#60444) * [Types of Payout Curves](#pp6nb) * [2\. Step Curves](#1vvo1) * [Should there be a performance cap?](#pp6nb) * [Final Thoughts](#1e3pf) ## Subscribe to our newsletter! Sign Up Recent Posts [ ![](/_astro/Incentive_Documentation_-_Tatiana.width-1000_ZvQGKI.webp) Why Incentive Plan Documentation Deserves More Attention Learn why incentive plan documentation is critical for accurate payouts, compliance, and trust. Discover how clear compensation plans prevent costly errors and hidden gaps. ](/blogs/why-incentive-plan-documentation-deserves-more-attention/)[ ![](/_astro/Bettina_-_Quota_Maintenance.width-1000_ZzGkLM.webp) Quota Planning Is Not a One-Off Exercise: Why Ongoing Quota Maintenance Is Your Hidden Growth Lever Sales organizations focus on setting quotas, but it's in maintaining them that real impact happens. Discover how continuous quota management improves visibility, alignment, and revenue performance. ](/blogs/quota-planning-is-not-a-one-off-exercise-why-ongoing-quota-maintenance-is-your-hidden-growth-lever/)[ ![](/_astro/How_Self-Management_Provides_Leverage_to_Ince.width-1000_dJrxFxY_Z1eJNFm.webp) AI Nudges vs Human Judgment: Striking the Right Balance in Sales Compensation How sales organizations can balance AI-driven nudges with human judgment to design fair, adaptive, and effective compensation plans. ](/blogs/ai-nudges-vs-human-judgment-striking-the-right-balance-in-sales-compensation/)[ ![](/_astro/What_Is_Total_Compensation_And_How_Is_It_Calc.width-1000_1Stnd1.webp) DIY Operations vs. IT Dependence: What Modern GCCs Expect from Enterprise Systems As GCCs scale, leaders expect systems that reduce IT dependence and enable faster, self-serve operations across teams. ](/blogs/diy-operations-vs-it-dependence-what-modern-gccs-expect-from-enterprise-systems/)[ ![](/_astro/GCC_Teams_Dont_Break_Incentives_They_Inherit_.width-1000_1rIHD5.webp) GCC Teams Don’t Break Incentives, They Inherit Broken Systems GCC teams don’t fail incentive programs, broken systems do. Learn why legacy processes, not people, cause incentive breakdowns. ](/blogs/gcc-teams-dont-break-incentives-they-inherit-broken-systems/) # A guide to design payout curve * [Sumeet Shah](/authors/sumeet-shah/) * Jan 21, 2021 * 4 min read * Last updated on Feb 12, 2026 ## **How to pay sales incentives to the employees?** We all know what the term incentive means in sales. One of the key aspects of a great [**sales incentive plan**](https://incentivatesolutions.com/how-to-create-measure-and-maximize-your-sales-incentives/) is to define threshold and excellence levels that motivate sales personnel during their on-field activities. Lack of these elements impacts the organization's overall performance, and that is where leaders run into questions like: _On what basis should one determine the incentive payout?_ The most commonly used way is to calculate performance against a target. A target payout curve plays a critical role in achieving it. It also helps maximize the sales personnel's potential and mitigate any negative behaviours. While setting up a payout curve, the company needs to consider a few elements, such as the cost it incurs, competitive opportunities, disruptions, and the availability of required resources. A well-defined incentive plan with clearly outlined milestones is all it takes to motivate your sales team. ## **Why is a payout curve essential?** Setting up a payout curve is necessary as it motivates and brings out the best in the employees. A situation may occur in which the company either overpays or underpays its employees. To avoid such scenarios and to keep your employees encouraged, you have to make sure that you [**choose the right curve & design**](https://aurochssolutions.com/different-types-of-sales-incentive-payout-curves-explained/) it phenomenally. The main aim is that the right people get paid for the right level of performance. A well-designed payout curve helps in driving desired behaviours within the sales team. It encourages individuals to strive for excellence by setting achievable yet challenging targets. The payout curve establishes a threshold point, target level, and point of distinction, motivating salespeople to surpass their performance and reach new heights. The main components of the payout curve are as follows: _The main components of the payout curve are as follows:_ ### **Threshold:** This is the entry point of achievement, where the payout plan begins to pay commissions. Below this point, there is no payout. ### **Target point:** The target point is the performance level of the salesperson, where they reach 100% of the earnings of that product. It's the minimum amount of money the sales team needs to generate to meet the company budget or quota. ### **Excellence:** At this point, the salesperson hits the target beyond payout. The point of excellence is the level you would expect from your top 10th-percentile performer. ### **Cap:** Cap refers to the highest payout that can be achieved. Above this point, there are no payouts, regardless of further sales. ### **Considerations for setting a threshold for payouts** * Set at the lower end of analyst predictions * Set at the lower end of a company's peer-performance range * If the markets are growing, set above the previous year’s results * Set at a point on the curve where salespersons have a **90 percent** chance of triggering the minimum payout ### **Considerations for setting excellence for payouts** * Set at the highest end of analyst predictions * Set at the highest end of a company's peer-performance range * Set line with the previous year's performance or record-level company performance, whichever is appropriate * Set at a point on the curve where salespeople have only about a **10 percent** chance of hitting the maximum payout [ Understanding Employee Incentive Plans ](https://incentivatesolutions.com/blogs/understanding-employee-incentive-plans-a-comprehensive-guide/) ## **Types of Payout Curves** ### **1\. Linear Payout Curves** A **linear payout curve** offers a straightforward commission structure where sales reps earn at a consistent rate as their sales volume grows. This means that for every additional dollar in revenue, a salesperson earns the same percentage in commission. This model works well when businesses want to maintain a simple and transparent compensation structure. However, within linear payout curves, there are different variations: * **Constant Linear Curve** - A fixed commission rate throughout (e.g., 5% commission on all sales). Best for steady, predictable earnings. * **Progressive Linear Curve** - The commission rate increases as sales volume grows (e.g., 5% up to $50K, 7% for $50-$100K, 10% beyond $100K). This motivates high performers to exceed targets. * **Regressive Linear Curve** - The commission rate decreases at higher sales levels (e.g., 10% on the first $50K, 7% after $50K). Helps businesses protect profit margins. * **Mixed Linear Curve** - A custom blend of the above to create targeted incentives based on company priorities. **Best for:** Organizations looking for a simple yet effective payout model that provides a **direct link** between effort and earnings. **Challenges:** May not drive aggressive overperformance unless progressive rates are applied. ## **2\. Step Curves** A step payout curve introduces commission tiers that reps must hit before unlocking higher earnings. Instead of a smooth, linear increase, reps experience a jump in commission percentage once they cross a specific sales threshold. For example, a step curve might look like this: * **0-50% of quota** → 5% commission * **51-100% of quota** → 10% commission * **Above 100% of quota** → 15% commission This model gamifies the selling process, encouraging reps to push harder as they approach the next tier. The psychological effect of nearing a commission increase can be a powerful motivator, especially in fast-paced sales environments. **Best for:** Businesses that want to boost short-term performance and prevent sales reps from becoming complacent once they meet their quotas. **Challenges:** Some salespeople might “sandbag” deals, delaying them until the next period to unlock higher commissions. ### **3\. Matrix Payout Curves** In complex sales environments, revenue alone might not be the best measure of a rep’s performance. A matrix payout curve accounts for multiple factors when calculating commissions. Instead of rewarding sales reps only on volume, this model considers: **Revenue vs. Profitability** – Encouraging high-margin deals over discount-heavy sales **New vs. Existing Business** – Rewarding reps for customer acquisition vs. renewals **Individual vs. Team Performance** – Encouraging collaboration in team-based selling For example, a rep might earn: * 8% on high-margin deals but only 5% on low-margin ones. * 10% on new customer acquisitions but 6% on renewals. * Higher incentives for achieving both revenue and customer satisfaction targets. Matrix payout curves help businesses steer sales teams toward sustainable, high-value deals rather than just high-volume transactions by aligning commission payouts with strategic business goals. **Best for:** Enterprise sales, SaaS, and industries where deal complexity requires more than just revenue-based commissions. **Challenges:** Difficult to administer and requires strong sales performance tracking systems. [ 6 Things to Look for in a Sales Commission Software ](https://incentivatesolutions.com/blogs/6-things-to-look-for-in-a-sales-commission-software/) ## **Should there be a performance cap?** The most important challenge is whether to cap the payout curve. The company's ability to predict the market, financial condition, and demand for the product or service forms the basis for this decision. However, just like a coin has two sides, the cap also has its pros and cons. Caps are less about math and more about people, behaviors, and psychology. Hence, they deter the motivation of the salespeople and hinder the sales process, as there is no incentive to keep the top performers going. This also trickles down to the middle and low-level performers. Nevertheless, in unstable markets, where it is impossible to predict future demands, payout caps have an advantage as they protect the business from unknown events. Caps also ensure high levels of customer service for complex products that require a long implementation cycle. ## **Final Thoughts** The payout curves are effective when implemented correctly. These curves motivate the sales team to work more diligently, so choose the threshold, excellence, and cap points with utter care and consideration. To conclude, the payout curve should cater to the company's needs and meet the salespersons' expectations. Do you feel the need to design a payout curve for your company? If yes, then feel free to reach out to us. [ Schedule A Demo With Incentivate ](https://incentivatesolutions.com/schedule-a-demo/) ## About Author ![](/_astro/Sumeet_Shah_1.width-300_Z1LH2BW.webp) Sumeet Shah [](/authors/sumeet-shah/)[](https://twitter.com/SumeetShah) Chief Growth Officer @Incentivate, has over 15 years of experience in management consulting, product engineering, and analytics, working with clients across multiple countries, functions, and domains. ## Subscribe to our newsletter! 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